The G20 Summit: A Critical Assessment (Part I) by The Bretton Woods Project

Globalist Perspective > Global Politics The G20 Summit: A Critical Assessment (Part I)
By The Bretton Woods Project \| Tuesday, April 07, 2009

While some have cautiously called the London G20 summit a success, the team from the Bretton Woods Project — a World Bank and IMF watchdog group — argues that the world’s leaders have failed to enunciate a vision for transformative economic change. In the first of a two-part series, they question the sources of the announced $1.1 trillion aid package.

o great fanfare, the G20 announced a $1.1 trillion global package, which will actually deliver less than half that amount in new or guaranteed resources.

Meanwhile, issues of fundamental economic reform were left off the agenda.

Of the putative $1.1 trillion, $50 billion — or less than 5% — is likely to be for the 49 poorest countries in the world.

The G20 meeting on April 2, billed as the London Summit 2009 because of its inclusion of non-G20 players, garnered positive media attention despite failing to set out a vision for transformative economic change — and pumping more money into the IMF and World Bank without a clear plan for reforming them.

The IMF received most of the boost, with a possible $500 billion in new resources and $250 billion in issuances of Special Drawing Rights (SDRs). Of the $500 billion, only half has been signed and sealed, the vast majority of which had been previously announced: $100 billion from Japan in January and the same amount from the EU in March.

Most of the new $50 billion comes from China — a small drop in its vast ocean of reserves, indicating that it continues to be reluctant to back the international financial institutions financially without real governance reform.

The second tranche of $250 billion only exists as a G20 promise to find the extra cash, and to make "substantial progress" in doing so by April's spring meetings.

The other massive increase in IMF resources was through an allocation of SDRs, the IMF's own internally created reserve asset. An SDR allocation effectively means printing new money — $100 billion of which will go to "emerging market and developing countries."

Unlike other forms of finance, SDRs come without conditions attached, but a country must still pay interest when it uses them. As SDRs are allocated according to voting shares at the IMF, the majority will go to rich countries.

The detail on the promised "global effort to ensure the availability of at least $250 billion of trade finance over the next two years" is entirely absent from the communiqué.

On new money for the multilateral development banks (MDBs), the language is particularly hazy. The G20 agrees only to "support" additional annual lending by the MDBs of $100 billion per year.

Some of this, such as a boost to International Finance Corporation trade financing, is money already promised. Some is supposed to come from existing MDB resources. Some will come from a 200% boost to the Asian Development Bank's capital, and consideration of similar moves for the Inter-American Development Bank and the African Development Bank.

World Bank attempts to garner additional contributions for its "vulnerability" funds were snubbed, with the G20 making clear that these would only be delivered bilaterally, from willing donors. So far, the UK is the only country to make concrete commitments — diverting £200 million of its existing aid budget for this purpose.

The G20 also asked the Bank to increase lending limits for "large countries" and to lend at market rates to low-income countries, but only those with "sustainable debt positions and sound policies."

Of the putative $1.1 trillion, $50 billion — or less than 5% — is likely to be for the 49 poorest countries in the world. The communiqué does not give clear details of how this figure is arrived at.

Of the $500 billion promised to the IMF, only half has been signed and sealed — the vast majority of which had been previously announced.

Eurodad, the Brussels-based NGO, estimates that in addition to $6 billion (over three years) from IMF gold sales that will be added to the IMF's concessional lending pot, $19 billion in new money will come from the SDR allocation.

The communiqué also calls for a doubling of the IMF's concessional lending capacity, currently at about $20 billion. That means that most of the total is IMF loans, which are only available if poor countries' economies go into meltdown.

The detail on the promised "global effort to ensure the availability of at least $250 billion of trade finance over the next two years" is entirely absent from the communiqué. The communiqué's commitment to meet existing aid pledges obviously meant more to some G20 countries than others. Italy, the current host of the G8, plans to cut its aid by 55% this year.

Editor's Note: This feature is adapted from an article first published by the Bretton Woods Project on April 3, 2009. The Bretton Woods Project works as a networker, information-provider, media informant and watchdog to scrutinize and influence the World Bank and International Monetary Fund (IMF).

Part II of this feature will be published on The Globalist tomorrow.

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